Governor Christie or President Christie? (Originally posted on Yahoo!'s "The Ticket" Blog)

Every day that Governor Christie of New Jersey flirts with federal office his likelihood of winning reelection is diminished. In recent months he has become agnostic on teaching evolution, he vetoed state funding for family planning and he has pulled state money out of projects designed to remediate the impact of global warming, even though has previously admitted that climate change is a real problem associated with human activity. All of these are going to hurt him when he runs for reelection, but if he stops flirting with the national Republican Party now, he still has a chance at reelection.

Every day that Christie focuses on New Jersey his likelihood of winning a federal office is diminished. He is a Republican in a Democratic state. He cannot make the policy that wins affection in New Jersey and stay friends with the national Republican Party.

He has a choice to make and my advice is to make that choice soon. The longer he tries to be Governor of New Jersey and viable federal office Republican the less likely he is to succeed at either of them!

Click Here for the Full Text.

Perry or Romney, polls or prediction markets (Originally posted on Yahoo!'s "The Ticket" Blog)

The political handicappers who take part in the prediction markets are not saying that Perry would lose a primary election to Romney today. Rather, they are betting that Romney is slightly more likely to win when the primaries are actually held in a few months.

The chart below plots one line showing the collective poll results for Perry in the wake of his announcement alongside another showing how the prediction markets have behaved over the same time:

Click Here for the Full Text.


Politics vs. the playoffs: Why do predictions change over time? (Originally posted on Yahoo!'s "The Ticket" Blog)

The Phillies season has gone just as expected, with a few bumps along the way. Why has the likelihood changed? Because the march of time has eliminated the uncertainty that a long campaign brings to the outcome.

Then the news of Peyton Manning's injury unfolded, and their likelihood of winning dissipated to near zero. In this situation the movement actually quantifies the value of the missing player (or, in politics, the cost of a campaign mistake).

Click Here for the Full Text.


Prediction markets show that Perry’s early surge is not the same as Trump’s was (Originally posted on Yahoo!'s "The Ticket" Blo

Perry is no Trump; he has risen to the top in the prediction markets, as well as the polls. This is an important indication that Perry is getting a serious hearing not just from GOP voters, but from political insiders as well. Still, the prediction markets are not quite so bullish on Perry thus far as GOP voters appear to be. Perry is way ahead in the polls (up by six, eight, and twelve points over Romney in the three most recent national polls), but only tied or slightly behind in the prediction markets. This suggests that even though political insiders are giving Perry his due as a legitimate candidate, they are still predicting that his relative strength will wane and Romney will close the race up before the end of the primary season …

Click Here for Full Text

How can we handicap Obama’s re-election chances? (Originally posted on Yahoo!'s "The Ticket" blog)

I posted a blog piece on Yahoo on the likelihood of President Obama's re-election (which is currently at 50.9%). Click Here for Full Text. As you can see, as bad economic news has arrived over the last few months, Obama's re-election likelihood has also plummeted.The chart is here:

Obama Re-Elect

and the real-time table is below:


How electable are the GOP’s presidential hopefuls? (Originally posted on Yahoo!'s "The Ticket" blog)

I posted a blog piece on Yahoo on the electability of the Republican candidates for President. Click Here for Full Text. As you can see, Rick Perry took a hit in both his likelihood of winning the Republican primary and his electability in the general during his first debate on Wednesday. The chart is here:

The real-time updating table is here:

Raising the Debt Ceiling – Update

There are three main developments in the forecasts surrounding the ongoing debt situation that I have been following.

First, the likelihood of a deal by Sunday is very low and sinking. Thus, the market is feeling confident that this situation is going to persists until the most desperate late hours. The President has set an August 2nd deadline, but many experts insist that the U.S. Treasury will be able to hold on a few more days past that until drastic measures would need to be taken.

Second, the markets are very confident that a deal will be struck sometime in August, at just the last moment; this number is approaching 80% and rising. Further, the likelihood of getting a debt ceiling deal by the end of August is very close (and tracking) the likelihood of getting a debt ceiling deal by the end of September. The market expects the matter to be resolved in August, but if it hits September, do not expect the urgency to continue.

Third, yesterday I added a prediction to the ‘Miscellaneous Politics' section of the website – the likelihood of S&P downgrading U.S. Treasury Bills by the end of 2012 and that number is consistently above 50% and rising. The markets are accounting for this possibility. To be clear this is a downgrade from AAA, but the rating can be downgraded and still be investment grade.

Keep your eyes peeled to the below table, because it a very dynamic market!


Raising the Debt Ceiling

I follow political forecasts for a living and it is rare that a political forecast is a true toss-up. Political election predictions tend to approach 100% for one candidate or the other, particularly as that election draws nearer. Even in the most hotly contested elections the leading candidate typically has a 60% or 70% likelihood of victory.

But, as of this morning, the most important political event in the U.S. is effectively equal to a coin flip: will the U.S. government complete a compromise to raise the debt ceiling by the end of July, ahead of the critical August 2 date declared by the President (the likelihood of an agreement by the end of August, also noted on the table, is at 75%). I am going to be following this table closely in the next few days and weeks.

I am tempted to add a few additional data points to this table that speak to the consequences of the debt ceiling not being raised (U.S. interest rates, the S&P rating of the U.S. Treasury Bill, etc.), but the implications of those are tricky. No one really knows what would happen if the debt ceiling is not raised. It is likely that a major priority for the U.S. would be to continue to service its debt; interest on its debt is far less than the revenue the government brings in, thus this would be feasible.

The most dramatic impact of not raising the debt ceiling is likely to be on the economy, where spending would have to be cut drastically. But, all indications are that any compromise on raising the debt ceiling will include dramatic spending cuts. Thus, all of the variables that may be affected by not raising the debt ceiling may be affected similarly by raising the debt ceiling. Stay tuned … more to come!


Mr. Huntsman: A Case Study in the Difference Between Polls and Prediction Markets

This morning Nate Silver, writing in his blog in the New York Times, notes the disconnect between a few recent polls and Intrade's prediction market in regard to the likelihood of Mr. Huntsman ultimately gaining the Republican nomination for President. He is concerned that Republicans are giving Mr. Huntsman the highest "unacceptability" ratings of any major Republican vying for the 2012 Presidential nomination; 51% of Republicans state that he is unacceptable in recent polls. Yet, despite these unacceptability ratings, Mr. Huntsman is being given 13.3% likelihood of the Republican nomination by the prediction markets, placing him in a strong third place (the fourth place contender, Ms. Palin, is at just 6.7%).

As Mr. Silver notes, Mr. Huntsman is unknown to most Republicans and, if they know anything, they are likely to only know that he was an ambassador for President Obama. I will quote the comment on the New York Times article written by "David from NJ" (who, despite the description, is not me!): "The press on Huntsman has characterized him as a moderate and his role as ambassador to China puts him in the Obama camp. The net is he falls in the same group as Romney and Pawlenty, with possibly less well known knowledge about his positions than either."

The first reason that prediction markets (Intrade and Betfair are very close on these numbers) differ from the polls is that prediction markets take into consideration what the Republican voters will learn between now and their primary elections, while polls do not. Knowledgeable prediction market users are expecting voters to eventually learn what "David from NJ"already knows: that Mr. Huntsman is not in the Obama camp, but a standard Republican. The prediction markets are predicting that those unacceptability numbers will disappear in the next few months.

The second reason that prediction markets differ from the polls is that the prediction market users assume that Mr. Huntsman, in expectation, matches up the best against Mr. Obama in a general election. Mr. Obama has a 62.7% likelihood of winning the general election, but that number is related strongly to the likelihood of meeting his different potential Republican challengers. He is more likely to beat some challengers than others.

Mr. Romney has a 30.0% likelihood of winning the nomination and an 11.7% likelihood of winning the general election. When thinking about "electability" what I think about is the likelihood of winning the general election assuming the candidate wins the nomination. For Mr. Romney, that likelihood is 39.0% or 11.7/30.0; Mr. Romney‘s electability is similar to Mr. Pawlenty (33.5%) and Ms. Palin (37.9%). All three of these fall in the middle range, making them about as likely to win a general election as the average Republican challenger against Mr. Obama. Ms. Bachman, who is a very extreme candidate, has an electability of just 27.6%. If she won the nomination, Mr. Obama's likelihood of wining the general election would shoot up to nearly 75%.

Mr. Huntsman has a 48.5% likelihood of winning the Presidential election,contingent on winning the Republican nomination. Thus, the second reason that the prediction markets think Mr. Huntsman is so likely to win the Republican nomination, despite his initial weak polling numbers, is that he is the most viable candidate for the Republicans in the general election. He is the only candidate that the markets think could turn the general election into a dogfight.


Up 2-1 in the Series …

As of today, the championship series in both basketball and hockey stand at 2 games to 1 game. PredictWise has determined that the Heat (up 2-1) are 75.9% likely to win the NBA championship and the Canucks (up 2-1) are 74.6% likely to win the Stanley Cup. For the sake of this article, I will say both currently leading teams are about 75% likely to win their respective titles.

There are ten possible scenarios of wins (W) and losses (L) that can occur when a team has a 2-1 advantage in a best of seven series. In six scenarios they win the title (WW, WLW, WLLW, LWW, LWLW, LLWW) and in four scenarios they lose the title (WLLL, LWLL, LLWL, LLL). The probability that they win the title is sum of the probabilities of the first six scenarios. If I assume that any given game is 50% for both teams (i.e., the teams are both equally likely to win any given game), the first six scenarios add up to 68.8% probability that the leading team will ultimately win the title. Thus, the market (and consequently PredictWise) does not believe that each game is independent and does not believe that both teams have a 50% likelihood of winning any game.

The market may be assuming that the leading team has a greater than 50% chance of winning any future game. If that is the case, to give the leading team a 75% probability of victory, the market needs to assume that they have 55% likelihood of winning any given game.

The market may be assuming that there is a home arena advantage, where both series have two games left at each team's home arena. If that is the case, to give the leading team a 75% probability of victory, the market needs to assume that the home team has a 75% probability of winning any given game. The leading team just needs to win its two home games, while the team that is down 2-1 needs to win at least one game on the road.

The final thing to consider is whether or not streaks affect a team's chances of winning. If the leading team wins game 4, on the road, and takes a 3-1 lead, does that make them even more likely to win game 5? If the team that is down 2-1 wins the next two games to take a 3-2 lead, does the other team become demoralized?

Enough with the theory, both leading teams are on the road for game 4. The Mavericks and Bruins, both down 2-1, are approximately 55% favorites to win the game in their home arena. Thus, there is clearly a home advantage, but not to the extreme necessary to cover the 75% probability of the leading team winning the title. Thus, there must be some element of a greater likelihood of victory being assigned to the teams currently in the lead and a non-independence of the different games, where if they win game 4, they increase the likelihood of winning game 5 against a demoralized opponent. In short,the answer is somewhere between these three simplified explanations.